It was considered the locomotive of the euro zone. But for several months already, Germany has been at a standstill. And it is not improving: its economy is expected to stagnate again in the third quarter of 2023, according to the monthly bulletin of the Bundesbank, the German central bank. It estimates that GDP “will probably remain largely unchanged again” from July to September compared to the previous quarter.
For the period from April to June, the provisional data reflect a growth of 0%. The final figure will be sent on August 25. Nothing to surprise economists: Germany has already experienced two straight quarters of recession at the turn of 2023. It is thus doing less well than its neighbors: when it suffered a decline of 0.4% in the last quarter of 2022, the France, Belgium (0.1%) and Spain (0.2%), they progressed…
The suffering industry
Industrial production is the main cause of this slump. It will “probably remain weak” this quarter, estimates the Bundesbank. Problem: it weighs for more than 20% of German GDP (against 12% in France for example). The automobile and capital goods sectors, which are used to manufacture other goods in aeronautics, naval and railways, are particularly in decline.
These difficulties can be explained by the weakness of domestic demand. German households have suffered from inflation, and the rise in interest rates applied to stem it has not encouraged investment. The country cannot count on its exports either: Chinese and American demand has fallen, these two states preferring to return to local production to stimulate their economy.
Another obstacle: German industry suffers from very high electricity prices compared to the European average. It has decided to abandon nuclear power, renounced Russian gas and coal, preferring to bet on renewable energies. But while waiting to finalize the transition, electricity bills have soared and the country has become less attractive to foreign companies.
No lull
No lull seems foreseen for the German economy. Over the whole of 2023, the main economic institutes expect a decline of between 0.2 and 0.4% of GDP. For its part, the International Monetary Fund (IMF) expects -0.3%.
The only good news: household consumer spending will support the economy against a backdrop of a “stable job market” and “strong wage growth” while inflation recedes, according to the Bundesbank. But this is not enough to reassure German industrialists. At the beginning of August, Wolfgang Reitzle, president of Linde, alerted to the situation. “If Germany becomes the sick man of Europe, it risks losing its AAA financial rating. The day Germany loses this rating will be D-Day for the Eurosystem,” said he alarmed in Die Welt. What if the locomotive had become a ball and chain?